Confidence in capitalist societies about the state’s capacity to exert rational control over markets and commit them to wider social values is waning. In Western Europe employment trends since the 1970s above all have casted doubt on the feasibility of active statehood. At the same time, governments have proven conspicuously unable to renounce their commitment to the promise, so central to modern industrial society, of an economy that serves man, and provides decent, socially valuable work for all who seek it. This has been true in particular for the German welfare state and its deeply rooted reliance on the imagery of full ‘normal’ or ‘quality’ employment as a critical touchstone for policy makers. It is the seeming paradox that German governments have sought justification for employment policy after the mid-1970s primarily through liberalization that this thesis addresses. The argument draws on a theoretical framework that champions ‘ideas’ as the dual foundation of policy making – in the form of institutionally supported knowledge that defines the practice of making policy in a democratic context, and as the semantic structures internal to policy related arguments that determine which aspects of a given policy reality can come to inform rational policy projects. Based on an analysis of the semantic structures underlying employment debates in Germany, and the arguments with which policy makers have designed and justified legislative initiatives, the thesis draws attention to the relation between the normative tensions faced by policy makers and the nature of diagnostic arguments through which employment problems are interpreted through time as a key to understanding rhetorical choices. The diagnostic framework that informed the liberalization of German employment policy then becomes intelligible as the politically most viable and pragmatic solution to the rhetorical problem of reconciling multiple and conflicting demands on state authority.